Several tax breaks and incentives are available at both federal and state levels to encourage investments in energy-efficient water treatment and conservation.
Federal tax incentives
- Energy-Efficient Home Improvement Credit: This credit, available until 2033, covers 30% of the cost of eligible energy-efficient home improvements. The maximum annual credit is $3,200, with limits for different upgrades. Eligible products, like electric heat pump water heaters, must meet specific efficiency standards. Claiming the credit may require using IRS Form 5695 and potentially a Manufacturer’s Certification Statement.
- Residential Clean Energy Credit: This credit offers 30% of the cost of new, qualified clean energy property for a home, including solar water heaters, installed between 2022 and 2032. The credit percentage decreases in subsequent years, and there are generally no annual or lifetime dollar limits. Solar water heaters must be certified by SRCC or a similar entity.
- Business R&D Tax Credits: Companies developing or improving water treatment products or processes may be eligible for federal R&D tax credits under Internal Revenue Code Section 41.
- Wastewater Energy Transfer (WET) projects: These projects may be eligible for the Investment Tax Credit (ITC) under Section 48 and the Section 179D Energy Efficient Commercial Buildings Deduction.
State and local incentives
- Many states and municipalities offer incentives for water conservation, including rebates for energy and water-efficient appliances and programs for sustainable landscaping and rainwater harvesting.
- Some states may have “Water Efficiency Tax Credits” for adopting water-saving technologies in homes and businesses.
- State energy efficiency incentives might be considered taxable income by the IRS unless they qualify as rebates or purchase-price adjustments.
Important considerations
- Consult a tax advisor or accountant to ensure you meet the requirements for any tax credits or deductions.
- Public utility subsidies and product rebates may reduce the cost of improvements when calculating tax credits.
- Spreading improvements over several years might help maximize annual tax credit limits.
By utilizing these tax breaks and incentives, individuals and businesses can reduce the cost of investing in energy-efficient water treatment and contribute to a more sustainable future.
How it was working according to the IRS
“The Residential Clean Energy Credit equals 30% of the costs of new, qualified clean energy property for your home installed anytime from 2022 through 2032. The credit percentage rate phases down to 26 percent for property placed in service in 2033 and 22 percent for property placed in service in 2034. You may be able to take the credit if you made energy saving improvements to your home located in the United States.
The credit is nonrefundable, so the credit amount you receive can’t exceed the amount you owe in tax. You can carry forward any excess unused credit, though, and apply it to reduce the tax you owe in future years. Do not include interest paid including loan origination fees.
The credit has no annual or lifetime dollar limit except for credit limits for fuel cell property. You can claim the annual credit every year that you install eligible property until the credit begins to phase out in 2033.” (LINK TO: https://www.irs.gov/credits-deductions/residential-clean-energy-credit)
Does Kentucky offer Water Efficiency Tax Credits?
Yes, Kentucky offers tax credits for certain water efficiency upgrades, primarily through federal programs like the Inflation Reduction Act. These credits can help offset the cost of installing energy-efficient water heaters, among other eligible improvements.
Federal Tax Credits:
- Energy Efficient Home Improvement Credit (25C):
This credit, part of the Inflation Reduction Act, offers a tax credit for qualified energy efficiency improvements, including certain water heaters, according to the IRS.
- Specifics for Water Heaters:
- Heat pump water heaters: You can claim a tax credit for 30% of the cost, up to a maximum of $2,000, for installing a qualified heat pump water heater.
- Gas water heaters: For ENERGY STAR certified gas storage or tankless water heaters, there are specific efficiency requirements (like UEF ratings) that must be met to qualify for the credit.
How to Claim:
- You’ll typically claim these credits when you file your federal income tax return, using IRS Form 5695, Residential Energy Credits.
- Be sure to keep records of your expenses, including receipts and any documentation showing the energy efficiency of the installed equipment.
Other Potential Incentives:
- Kentucky Home Energy Program: This program, administered by the Kentucky Energy and Environment Cabinet, may offer rebates for energy efficiency upgrades, potentially including water heater installations.
- Local Utility Programs: Check with your local utility provider (like LG&E and KU) for any additional rebates or incentives they offer for energy-efficient water heaters.
CAVEAT: New Tax Law Changes with the OBB (one big beautiful bill):
Many of these tax credits are now slated to end on December 31, 2025 so act now!
According to recent news reports and analyses, several federal clean energy tax credits, including those for energy-efficient home improvements and residential clean energy installations, are set to expire sooner than originally intended due to the passage of a new bill.
“If you’ve wanted to install rooftop solar panels or buy an electric vehicle in recent years, you’ve probably been able to get federal money for them in the form of tax credits. But those incentives are going away now that President Trump signed what he’s called the “One Big Beautiful Bill” into law on July 4. That means in the coming months there will be “a ‘hurry-up-and-buy’ ‘limited-time-offer’ kind of dynamic” to get these government incentives, says Ari Matusiak, CEO of the nonprofit Rewiring America. ‘If you want to access them, then really you need to get going,’ he says.” – NPR
Specifically, the following credits are impacted:
- Residential Clean Energy Credit: This credit for renewable energy systems like solar panels, wind turbines, and geothermal heat pumps was originally extended through 2034 by the Inflation Reduction Act. However, the new legislation eliminates this credit for expenditures made after December 31, 2025.
- Energy Efficient Home Improvement Credit: This credit, which covers upgrades like insulation, doors, windows, heat pumps, and other energy-efficient appliances, was also extended through 2032 under the Inflation Reduction Act. This credit too will be eliminated after December 31, 2025.
This means that homeowners who were planning to take advantage of these incentives to make their homes more energy-efficient may have a shorter window than expected to do so.
Important considerations
- Act quickly: If you’re planning on making these upgrades, it’s recommended to do so as soon as possible to ensure you can claim the credits before they expire, according to WUNC.
- Consult with a tax advisor: It’s always best to consult with a qualified tax advisor to discuss your specific situation and understand how these changes might impact your tax liability, according to Landmark CPAs.
- Check for state and local incentives: While federal credits are changing, state and local governments, as well as utility companies, may still offer their own incentives for energy-efficient home improvements, according to Constellation.
Disclaimer: Tax laws are subject to change. Please consult with a qualified tax professional for the most up-to-date and accurate information.
Are Culligan Water Softeners and Water Drinking Stations Energy Efficient?
In order to be Energy-Star rated, products must meet strict energy efficiency guidelines set by the EPA and US Department of Energy. According to energystar.gov, qualified products must use “significantly less” energy than other products on the market.
- Culligan’s water coolers / bottleless water coolers: Culligan states that their bottle-free (bottleless) water cooler systems are “EPA Energy Star certified,” meaning they use about half the energy of comparable systems.
- Culligan’s Quench line (a subset of their cooler/dispensing units) has specific models that are ENERGY STAR certified — the 640, 720, and 760 units. Culligan Quench
- Culligan’s hot/cold water dispensers are explicitly labeled “ENERGY STAR rated.”
In addition to using no electricity to operate, a Culligan system can help save energy in other ways:
High Efficiency (“HE”) Water Softeners
Culligan has a line called Aquasential High Efficiency water softeners. These are specifically engineered to use less salt, less water, and less electricity compared to older or more basic softener designs.
- They use technologies like Aqua-Sensor®, which detects water hardness and adjusts regeneration only when needed, rather than regenerating on a fixed timer. That avoids excess regeneration cycles.
- Some have “proportional up flow brining”, which means only part of the resin bed regenerates when needed, which reduces waste.
- They claim up to ~46% reductions in operating cost (which includes energy, salt and water) compared to time-clock regeneration softeners.
Pollution & Other Indirect Savings
Soft water greatly helps in maintaining the efficiency of appliances like water heaters, washing machines, etc.:
- Hard scale buildup in heaters, pipes, fixtures reduces efficiency and lifespan. Softened water slows scale, which helps appliances run more efficiently longer.
- Less detergent, lower washing temperatures, fewer maintenance issues when water is softer. These contribute to energy and cost savings.
Other Culligan Products
There are Culligan-Quench / HydroTap type water dispensers/coolers that advertise features like energy-saving modes, efficient cooling/chilling, reduced waste, and use of refrigerants with lower environmental impact.
